McTague Feb 0509

Jim McTague Investment Panel Agriculture has always been a recipient of generous subsidies. After researching, I found that Federal monies were spent on farms prior to the Civil War by the patent office which did a study of seed usage in the United States. President Lincoln set up a bureau of agriculture. It was not a department level institution at that time. Treasury was in charge of monitoring imported beef for hoof-and-mouth disease.

You will not hear much about farms in the stimulus bill, and the reason is that the farmers got quite a bit of money in the 2008 farm bill which was actually adopted in 2007. they got $286 billion over five years. That used to be a lot of money, pre-TARP. You know it sounds like pocket change now. Prior to that, farmers had received $177 billion in the previous farm bill, over about 12 years. Now, this does not include hidden subsidies. We do not have good numbers on the total amount of subsidies that farmers in this country get. I think a lot of that is by design because of the nature of world trade and disputes over subsidies. There are about a million farm workers; half a million of the farm workers are from the families that own the families. The other half a million are migrant workers, and about half of those workers are illegal immigrants. According to the Department of Agriculture, they are among the heaviest users in the United States of welfare, Medicaid, and education assistance. So, this is all a subsidy that goes in to the farms that helps, I guess, you could argue that it reduces food prices and raises the tax bills. I do not know how that works out, but they get a gigantic subsidy from welfare.

Now, what is amazing about the last farm bill: it is the first time in history that there was an energy title in it. It was a billion dollars for biofuels. Ethanol has been the biggest boon to farmers in decades. If you look at the rate of millionaire formation in this country, the fastest rate of formation in 2008 was in the Midwestern states: Nebraska, Iowa, North and South Dakota. So, this was primarily people who were becoming millionaires because the value of their farmland was increasing by-it was up to 50 percent between 2004 and 2007. It was up another 22 percent in 2008, and this is primarily because of the production of corn that was being sold to ethanol refineries.

Farmers are also benefitting from what I see as another hidden subsidy, and that is for wind energy. This is a reason that Iowa Senator Chuck Grassley, who reportedly is a fiscal conservative, has been a vocal proponent of extensions of a 1992 tax credit for wind providers which is very generous. Wind energy cannot compete with other forms of energy without subsidies. Most of the windmills erected in this country are erected on farmland. A typical windmill will occupy about a half acre of land, and a farmer accepting passive rents for this will get between $2,000 and $5,000 a year per windmill.

In 2003, Senator Grassley issued a press release, boasting that Iowa land owners were collecting about $640,000 a year in rents. Based on statistics now, there are about 1,394 windmills in Iowa. So you know, you can do the math, but it is up-their rent is up about 338 percent. According to the American Wind Power most windmills are on farmland.

Most of it, I guess is Boone Pickens land because there are about 6,000 in Texas.

California has the new highest level. Iowa has probably close to 2,000 windmills. The state of Pennsylvania has about 334 and Massachusetts has 5.

When I speak of the virtuous cycle of farmers, when you look at the stimulus bill and you look at the Obama administration’s emphasis on green energy and green power, even if there is not a direct subsidy for the farmers, they are benefitting indirectly from this subsidy.

In preparation for this conference, I sat down with lobbyists from the agricultural industry. The bailout is the piece de resistance for Wall Street. In the past, these subsidies seemed exorbitant. Now, by comparison, it is pocket change, and they will go back to Congress in the next couple of years for more money. Like William McKinley and Bryan, this is the Midwest against the Eastern bankers. The argument is that the famers will be forced to help pay back funds to make up for this massive bailout of Wall Street. They see no reason for Congress to withhold the bigger subsidies for agricultural industry.